BRATISLAVA, June 13, (WEBNOVINY) — The Cabinet-approved draft amendment to the law n the old-age pension saving scheme is not directed at solving the problems of the current situation in the sector, according to the Association of the Pension Fund Management Companies (ADSS). The association points out that the draft has not shown any features of stability in terms of the further potential development yet. “Given these reasons, we are exceptionally interested in continuation in the discussion on changes to the second pension pillar, matter-of-factual argumentation and an effort to seek a good and stable solution to resolve problems in the second pension pillar,” stated ADSS
The association maintains that the introduction of guarantees to the capitalization pillar has proven itself advantageous for a substantial part of savers. Nevertheless, pension fund management companies consider the current state unsatisfactory. “The current setting does not facilitate satisfactory appreciation of savings due, to the unsuitable setting of the system of guarantees, asset appreciation monitoring period as well as the structure of fees and for that reason it needs to be revised,” concludes ADSS. Pension fund management companies underscored that as fund administrators they behave and indent to continue behaving as responsible pension administrators. “We observe the principle that no professional pension fund administrator will invest a major portion of savings of clients who lack adequate knowledge of investment and risk involved in shares,” stressed ADSS referring to the global trend in the area of regulation backed by experience from the financial crisis.
Last week, the Cabinet passed a concept of second pension pillar changes tailored by the Labor Ministry. As of April 1 of next year, guarantees should cease to exist in the current growth and balanced fund in compliance with the new rules, but not in the conservative fund. Savers will have specified time to quit the mixed (the current balanced fund) or equity fund (growth fund) and switch to the guaranteed bond fund (presently the conservative fund). A new equity-linked index fund will be founded. The ministry wants to enable diversification of pension savings into two funds, provided that one of them will be the guaranteed conservative fund.
Prime Minister Iveta Radicova championed preservation of the existing guarantees in all existing pension funds at first. She now believes that the Cabinet-approved solution will facilitate “undoubtedly more advantageous setting of the second pension pillar” compared with the current one. She underscored the potentially higher yield and improved system of guarantees. “The system of guarantees should secure the guarantee of at least the volume of assets that savers deposit in the system, not that the system will be loss-making and the statement of a pension account will hold lower final sum every year,” said the Prime Minister. The current system guarantees the volume of the principal before deduction of fees for a pension fund management company. Based on the new mechanism, pension fund management companies should guarantee savers in existing conservative funds the volume of deposited sources after consideration of fees.
The Labor Ministry wants savers to have the opportunity to diversify pension savings in two funds, provided that one of them is the guaranteed conservative fund. “Guarantees can still be preserved for savers. No client will lose them,” assured the prime minister. She accepted the legislative proposal of Labor Minister Jozef Mihal in part because it enables diversification of pension savings in two funds. “This system will secure savers return on their savings,” she added. The prime minister believes that if the setting of the second pension pillar was not revised, savers would be much better off depositing their pension savings in any banks and hence earn more.
The existing conservative fund will be called the bond fund and, as the labor minister says, the new name will better reflect the investment strategy within this fund. The change in fund valuation should enable purchase of securities of longer maturity with higher potential returns. The balanced fund will be renamed the mixed fund and the growth fund will be labeled the equity fund. The brand new equity-linked index fund is to focus on stock markets and follow the performance of a selected stock index or a basket of stocks.
Pension fund managers will be obliged to notify their clients of placing money into other than the conservative fund in writing of the end of guarantees by January 15, 2012 at the latest.
SITA